Greece Needs a Deep Debt Write Off
1.Debt restructuring options for Greece It is generally agreed that public debt continues to pose a major problem for Greece. The IMF expects debt to decline to 124% of GDP by 2020, while annual rates of growth are projected at a little less than 3%. To achieve this target Greece has been forced to adopt ... Read more
Japan’s Third Lost Decade Begins
Japan’s recession is not paving the way for sustained growth. It is prolonging new debt and liquidity and thus deteriorating fiscal discipline. In the last quarter, Japan’s economy fell into recession. In the West, it was characterized as “unexpected.” The realities are precisely the reverse. With its third ’lost decade,’ Japan has entered an era ... Read more
Privatizations and Debt : Lessons From The Greek Fiasco
In the midst of the European Debt Crisis, it is tempting to think that high-debt countries could alleviate the recessionary impact of the budget consolidation process by selling (poorly managed) assets and stakes in their state owned enterprises (SOEs), and by using the proceeds to buy back their debts. In addition to providing a cushion ... Read more
Austerity and Growth: Dispelling Confusion With Some Facts
A lot of confusion surrounds the quarrel about austerity and growth in and among the Euro-countries. [1] Confusion helps neither the assessment of the current policies nor the choice of the correct ones. Critics of austerity argue that it is mainly responsibile for the extent and persistence of low or negative growth rates after the ... Read more
CDS: Insurers Pay Only When the Bond Is ‘All Dead’
The saga that is the Greek CDS trigger – a credit event being ruled only after CACs were inserted retroactively and then used by the Greek government to force the debt swap – made me think of a classic scene in the Princess Bride. Watch the YouTube clip of Billy Crystal as Miracle Max, who famously ... Read more
I Still Don’t Get Why the ECB Hiked Rates
I still don’t get why the ECB hiked rates in April and July of 2011. I questioned this using bond market pricing back in August 2011. Now I question it once more using the ex post trajectory of mortgage rates. Across the Euro area, 43% of total home loans are made on a variable rate ... Read more
Core Euro Area Banks Still Very Exposed to Contagion from a Greek Exit
Today Megan Greene (@economistmeg) wrote a rather insightful post linking this weekend’s German proposal to Greece’s eventual exit from the EMU – the leaked proposal is to (1) make Greek debt service a top priority, and (2) for Greece to rescind national fiscal sovereignty to the European level (links included in her post). At the ... Read more
EA Spreads: Why Should the Trend Change?
They changed the title; but originally the NY Times reported “Euro Zone Agrees to Reinforce Maastricht Rules“. That’s exactly what EA policy makers agreed to last week – not much to bring home.The real shift in policy came from the ECB. Ambrose Evans-Pritchard highlights the ECB’s actions as ensuring some sort of bank profitability, while at ... Read more
EA Balance of Payments: the Current Account
I’ve been doing quite a bit of research on the balance of payments flows within the Euro Area (EA). Given the complexity of the balance of payments, there are too many angles to tackle in one post. Therefore, spanning the next week I will dedicate my commentary to the EA balance of payments. In this ... Read more